Timid choices and bold forecasts: a cognitive perspective on risk taking
Article Abstract:
The treatment of risk-averse and optimistic forecast biases in decision-making is examined through a cognitive analysis of risk-taking. Managers have the propensity to overestimate risk and thus, refuse to take responsibility for it. Overly optimistic forecasts occur when problems are treated as unique and plans are based on successful scenarios, instead of on historical information. Ignoring the pooling of risk is another tendency encouraged by such a narrow point of view. These biases exist because people prefer to take an internal view of problems, instead of a broader, outside view. Changing perspectives to include external factors will generally reduce the errors that result from both bold forecasts and overly timid attitudes to risk. These two biases have opposite effects that do not cancel out. Thus, corrective measures for one must be used in conjunction with those for the other.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1993
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Union-firm bargaining and the influence of product market power and production technology on systematic risk
Article Abstract:
A study is conducted to investigate the impact of labor market organization in the form of wage negotiations on the relationship among the investors' assessment of firm risk, the labor-capital intensity and its product market power. The study uses a model under uncertainty that incorporates the characteristic of an ex ante 'inputs substitutable' production with union-firm bargaining. This model seeks to quantify systematic risk by using a 'mean-variance-capital-asset-pricing model' framework. The results provide evidence that 'financial' variables can be related to 'real' variables and that the assessment of firm risk is affected by imperfect competition in the product and the input markets. Findings also show that the firm systematic risk or the firm stock price, is not influenced by unionization per se but by labor union power.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1995
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